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Herzfeld & Rubin P. C. Going the Distance One Step at a Time
Herzfeld & Rubin Goodbye Burma Sanctions? Welcome GSP! An American Update AMCHAM THAILAND AUSTCHAM THAILAND Bangkok, Thailand December 2 nd, 2016
Herzfeld & Rubin THIS IS NOT LEGAL ADVICE Attendance of this seminar, or receipt of this presentation, does not establish an attorneyclient relationship between the participant and HRMR. The material presented, and the answers given do not constitute legal advice and are for general information only. This information reflects the laws and regulations as of December, 2016. You should not apply this information to any specific situation without first consulting with a qualified legal expert.
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Herzfeld Rubin Meyer & Rose Legal background of the U. S. Burma Sanctions Trading with the Enemy Act, 50 U. S. C. sect. 1 -44 (1917) National Emergencies Act (NEA), 50 U. S. C. sect. 1601 -1651 (1976) International Emergency Economic Powers Act (IEEPA), 50 U. S. C. sect. 1701 -1706 (1977) Foreign Operations, Export Financing, and Related Programs Appropriations Act (Public Law 104 -208), sect. 570 (1997) Burma Freedom and Democracy Act of 2003 (PL 108 -61), 50 U. S. C. sect. 1701 (2003)(“BFDA”) Tom Lantos Block Burmese Jade Act of 2008 (Public Law 110 -286) 50 U. S. C. $1701 (2008)(“JADE Act”) Burma Sanctions Regulations, 31 C. F. R. Part 537 (fully reissued at 79 FR 37106 -14 + 81 FR 31169 -01)
Herzfeld Rubin Meyer & Rose Legal background of the U. S. Burma Sanctions (cont’d) Executive Actions: 1989 - Suspension of GSP 1997 - Executive Order 13047 – declared national emergency under IEEPA and prohibited new investment in Myanmar by “U. S. Persons” 2003 – Executive Order 13310 – sect. 3 and 8 revoked in 2013 – implemented BFDA import restrictions, prohibited financial services exports to Myanmar, targeted Myanmar officials and
Herzfeld Rubin Meyer & Rose Legal background of the U. S. Burma Sanctions (cont’d) Executive Actions (cont’d): 2007 – Executive Order 13448 – expands sanctions criteria by including human rights abuses, public corruption, and support for government (i. e. “cronies”) 2008 – Executive Order 13464 – expands the authority to cover state-owned or controlled enterprises 2012 – Executive Order 13619 – expands authority to target those opposed to peace process, and involved in arms trade with North Korea 2013 – Executive Order 13651 – prohibits imports of jadeite and rubies
Herzfeld Rubin Meyer & Rose Specially Designated Nationals (“SDN”) List A compilation of Myanmar and other nationalities’ names listed in the respective Annex to a variety of Executive Orders. Complete list can be found at: http: //www. treasury. gov/SDN U. S. persons (both companies and individuals, wherever located) are prohibited from engaging in any transaction with a SDN-listed party, defined as one owned, or controlled, directly or indirectly, 50% or more by an SDN – but see
Herzfeld Rubin Meyer & Rose U. S. Financial Sanctions on Myanmar not related to the U. S. Burma Sanctions Myanmar has been found to be a jurisdiction with “strategic AML/CFT (Anti-Money Laundering and Counter-Financing of Terrorism) deficiencies” by the Financial Action Task Force (FATF). FATF has since “graduated” Myanmar from its “grey” list in June, 2016. USA Patriot Act (Public Law 107 -56) (2001) + U. S. Bank Secrecy Act 31 USC sect. 5311 et seq. (1970) Enforced by the Financial Crimes Enforcement Network (Fin. CEN) of U. S. Treasury Dept.
Herzfeld Rubin Meyer & Rose U. S. Financial Sanctions(cont’d) Fin. CEN has designated Myanmar in 2004 as a primary money laundering regime. To date, it has not rescinded that finding, despite the fact that President Obama has now exempted all Myanmar financial institutions from the provisions of Section 311 of the USA Patriot Act AND FATF has taken Myanmar off its lists (“black” and “grey”). Fin. CEN, however, issued on October 7 th, 2016, a “conditional exception” to the Bank Secrecy Act regulations concerning Burma regarding Section 311 (Fin. CEN Issuance 2016 -1). Fin. CEN specifically left untouched the USA Patriot Act Section 312 “enhanced due diligence” requirements for financial institutions dealing with Myanmar.
Herzfeld Rubin Meyer & Rose USA Patriot Act (Public Law 107 -56)(2001), Section 312 (cont’d): “… financial institutions covered by the final rule must take reasonable steps to: (1) determine the identity of all nominal and beneficial owners of the private banking account; (2) determine whether any such owner is a senior foreign political official and, thus, is subject to enhanced scrutiny (described below); (3) determine the source(s) of funds deposited into the private
Herzfeld Rubin Meyer & Rose Financial Sanctions(cont’d) Section 312 of the USA Patriot Act requires U. S. financial institutions to perform “enhanced” due diligence with regard to correspondent accounts established or maintained foreign financial institutions and private banking accounts established or maintained for non-U. S. Persons. The new Treasury Dept. ’s “Customer Due Diligence (CDD)” Rule, which was issued on May 11 th, 2016, and will be applicable on May 11 th, 2018, is similar to the requirements of Section 312 of the USA Patriot Act.
Herzfeld Rubin Meyer & Rose Which financial institutions are affected by these two rules: U. S. financial institutions are covered by the correspondent banking provisions of the Section 312 final rule, including: (1) banking institutions; (2) securities broker-dealers; (3) futures commission merchants and introducing brokers in commodities; and (4) mutual funds.
Herzfeld Rubin Meyer & Rose Which financial institutions are affected by these two rules (continued): correspondent accounts maintained for the following foreign financial institutions: (1) a foreign bank; (2) a foreign branch of a U. S. bank; (3) a business organized under a foreign law that, if it were located in the United States, would be a securities brokerdealer, futures commission merchant, introducing broker in commodities, or a mutual fund; and (4) a money transmitter or currency exchanger organized under foreign law.
Herzfeld Rubin Meyer & Rose U. S. actions announced on October 7 th, 2016 Question: What will happen to the enforcement of Section 312 of the USA Patriot Act? To quote a foreign banker in Myanmar: “I believe that even if 312 requirements go away, banks like ours will continue to carry out the enhanced due diligence on Myanmar banks or companies as Myanmar would still be considered a high risk jurisdiction due to AML/CFT (yes, despite having been taken off the “grey” list) and other factors. Fin. CEN is not
Herzfeld Rubin Meyer & Rose Continuation of other U. S. sanctions: 1)JADE Act’s ban on the issuance of visas for travel to the United States by former leaders of the SPDC regime, officials involved in the repression of human rights, other key supporters of the regime, and their immediate family members. 2)Restrictions on U. S. sales of military equipment or services to the Tatmadaw 3)Potential sanctions on dealing with North Korea
Herzfeld Rubin Meyer & Rose Anti-narcotics legal framework: a)Executive Order 12978 (1995) dealing with Colombia narcotics traffickers. b)OFAC “Narcotics Trafficking Sanctions” regulations – 31 C. F. R. Part 536 (1997) c)Foreign Kingpin Designation Act (“Kingpin Act”) – 21 U. S. C. sect. 1901 -1908 and 8 U. S. C. sect. 1182 (1999) d)OFAC “Foreign Narcotics Sanctions” Regulations – 31 C. F. R. Part 598 (2000)
Herzfeld Rubin Meyer & Rose Criteria for being listed as a SDN narcotics trafficker: 1)Plays a significant role in international narcotics trafficking centered in Colombia 2)Assists in, or provides financial, technological, services or goods support for narcotics trafficking 3)Is owned or controlled by, or acts for or on behalf of, any other SDN narcotics trafficker.
Herzfeld Rubin Meyer & Rose Burma SDNs on the Drug Kingpin (SDNTK) OFAC program: Name. Address THET, Naing Winc/o TET KHAM CONSTRUCTION COMPANY LIMITED KHINE, Oo Ooc/o YANGON AIRWAYS COMPANY LIMITED MYINT, Lic/o HONG PANG ELECTRONIC INDUSTRY CO. , LTD. AKIRAPHOKIN, Thitc/o DEHONG THAILONG HOTEL CO. , LTD. HLA, Aungc/o YANGON AIRWAYS COMPANY LIMITED CHANG, Chin Sung LAO, Ssu SHIH, Kuo Neng CHA, Ta Fa YUN, Cheng 11, Ngu Shwe Wah Road, Between 64 th and 54 th Street, Chan Mya Si Tsp. KYA, La Bo. Nakawngmu LI, Cheng Yu TUAN, Shao Kuei. Mong Kyawt Li, Kai Shou. Huay Aw PAO, Hua Chiang Panghsang PAO, Yu Liang. Mong Mao PAO, Yu Yi. Panghsang PAO, Yu Hsiang. Kwe Ma
Herzfeld Rubin Meyer & Rose Burma SDNs on the SDNTK anti-narcotics traffickers OFAC program (cont’d): Name. Address WEI, Hsueh Yuan Huay Aw WEI, Hsueh Lungc/o, DEHONG THAILONG HOTEL CO. , LTD. c/o, HONG PANG ELECTRIC INDUSTRY CO. , LTD. HO, Chun Ting. No. 7, Inya Road & Oo Yin Street, Kamayut Township HONG PANG GEMS & JEWELLERY Co. Ltd 11, Ngui Shwe Wah Road, Between 64 th and 65 th Streets, Chan Maya Thar Si Tsp. HONG PANG GEMS & JEWELLERY (HK) Co. Ltd. Room 3605 36/F Wu Chung House, 213 Queen’s Road East, Wan Chai HONG PANG TEXTILE COMPANY Ltd. No. 216/222, Room C/D, Ground Floor, Bo Myat Tun Housing, Mahabandoola Road, Pazundaung Township HONG PANG MINING COMPANY Ltd. No. 216/222, Room C/D, Ground Floor, Bo Myat Tun Housing, Mahabandoola Road, Pazundaung Township HONG PANG LIVESTOCK DEVELOPMENT Co. Ltd. HONG PANG GENERAL TRADING Co. Ltd. 18, Kyaing Ngan St. , Qtr. 2 HONG PANG ELECTRONIC INDUSTRY Co. Ltd. 216, Corner of 49 th St. and Maha Bandoola Rd. , Pazundaung TET KHAM CONSTUCTION COMPANY Ltd. Pyinmana Taung Twin Road, Let Pan Khar Village, Pyinmanar YANGON AIRWAYS COMPANY LIMITED MMB Tower, Level 5, 166 Upper Pansodan Rd. , Mingalar Taung Nyunt Township
Herzfeld Rubin Meyer & Rose Unless otherwise authorized or exempt, the following transactions are prohibited to “U. S. Persons”: Transferring, paying, exporting, withdrawing or otherwise dealing in the property or interests in property of an SDN party, or one 50% or more owned, directly or indirectly, by an SDN party, regardless of whether the entity itself is SDNlisted. But see: OFAC Guidance August 13 th, 2014 https: //www. treasury. gov/resource-
Herzfeld Rubin Meyer & Rose U. S. Treasury Department’s Office of Foreign Asset Control Reporting Requirements An affected party has to report transactions with SDN parties or property, or transactions which may have been rejected, or any license issues
Herzfeld Rubin Meyer & Rose Penalties: E. O 12978: Civil penalties: $250, 000 or twice the amount of the underlying transaction Criminal penalties: criminal fines up to $1, 000/offense, imprisonment up to 20 years, or both. Kingpin Act: Civil penalties: $1, 075, 000/violation Criminal penalties: fines between $5 and $10
Herzfeld Rubin Meyer & Rose U. S. Treasury Department’s Office of Foreign Asset Control Recordkeeping Requirements All documents involving an OFAC action have to be maintained no less than five years, although OFAC may require a specific period Records to be maintained in a readily accessible format in the original language
Herzfeld Rubin Meyer & Rose Recommended Compliance Procedures Have a comprehensive compliance program, and annually audit your own employees’ actions Undertake thorough (“enhanced”) due diligence on your customers/partners on a continuous basis (i. e. subject to disclosure of “material” events) Use standardized contracts which are fully compliant with OFAC and other government rules, and implement document retention policies
Herzfeld Rubin Meyer & Rose Additional OFAC web resources: http: //www. treasury. gov/resourcecenter/sanctions/programs/pages/narco. aspx
Herzfeld Rubin Meyer & Rose U. S. Chamber of Commerce Report – “U. S. Myanmar Commercial Relations – The Next Phase” (2016) https: //www. uschamber. com/file/usmyanmarcommercialrelations-thenextphase-pdf
Herzfeld Rubin Meyer & Rose Discussion A)What is the practical extent of the removal of the U. S. Burma Sanctions B)Which are the key areas of opportunity and risk for business with regard to Myanmar C)Which are the potential next steps in the sanctions process
Herzfeld Rubin Meyer & Rose Question: what will happen to companies under Union of Myanmar Economic Holdings and the Myanmar Economic Corporation, which control multiple interests in agro-farming, airlines, banking, minerals, tourism and trading industries? Some of them may be involved in arms trade with North Korea. Question: what will happen to Steven Law and the Asia World group, and to U Tay Za and the Htoo Group, among others? Some of them have been alleged by the Treasury Dept. to be
Herzfeld Rubin Meyer & Rose WELCOME GSP!
Herzfeld Rubin Meyer & Rose The U. S. Generalized System of Preferences (GSP) statute was enacted in 1974 (19 USC sect. 2461 https: //ustr. gov/sites/default/files/uploads/factshe ets/Trade%20 Topics/Trade%20 and%20 Develop ment/GSP%20 statute%2019%20 USC%20 2461%20 et%20 seq. pdf) The GSP regulations can be found at: 15 CFR Part 2007 (https: //ustr. gov/sites/default/files/USTRRegulations-Pertaining-Eligibility-GSP-Program-
Herzfeld Rubin Meyer & Rose The GSP Guidebook can be found at: (https: //ustr. gov/sites/default/files/The%20 GSP% 20 Guidebook. pdf) The U. S. GSP provides temporary duty free access to the U. S. market for some 5, 000 products from the Least Developed Beneficiary Countries, like Myanmar. In 2015, products from over 120 countries entered the U. S. under the GSP program, amounting to over $17 billion. GSP, which expires in December, 2017, is
Herzfeld Rubin Meyer & Rose Which products are eligible: a)Manufactured, semi-manufactured and manufacturing inputs – e. g. electric machinery and equipment; ceiling lights/chandeliers; ceramic sanitary items; boiler taps & valves; voltage meters; iron/steel items, like fittings, flanges & elbows for tubes/pipes, chains, screws, washers, wire, grinders; stainless steel tables; lamp parts; glass fibers; etc. b)Primary industrial products – e. g. insulated ignition wiring harnesses for cars, planes and
Herzfeld Rubin Meyer & Rose Which products are eligible (cont’d): d)A number of non-diary agricultural and fishery products – frozen and dried vegetables, pure oils & essences, ethyl alcohol, prepared/preserved beans, spices, herbs, seasonings/condiments, soups & broths, coffee, sugar confections, etc. e)Many types of base metals, building stone, marble, cement products, minerals and chemicals – e. g. ferrosilicon; iron oxides; copper alloys; copper wire/bars/rods/cathodes; organic chemicals; etc.
Herzfeld Rubin Meyer & Rose Which products are eligible (cont’d): Only products designated as A, A+ or A* in the U. S. Harmonized Tariff System, and Myanmar has to be eligible for that product under GSP. Products should have been grown, produced, extracted or manufactured in Myanmar. Products must be imported into the U. S. directly from Myanmar – not in trade in a third country, only in transit in a sealed container
Herzfeld Rubin Meyer & Rose Which products are eligible (cont’d): If product contains foreign components, the sum of the cost or value of materials produced in Myanmar, plus the direct costs has to exceed 35% of the product’s appraised value when sold. But see the “double substantial transformation” rule (i. e. imported components of a Myanmar product must be substantially transformed into a separate and identifiable “intermediate article, ” which then must, once again, be subjected to a sufficient substantial transformation operation so
Herzfeld Rubin Meyer & Rose Who is claiming GSP status: the U. S. importer, not the Myanmar exporter. Yet, exporter has to keep accurate records, and be aware of the GSP procedure, and other requirements: For example, the export of sanitary items (e. g. makeup, perfumes and food). Most food (except poultry and beef) is regulated by FDA. TIP: Myanmar producers and exporters of food should register with the U. S. FDA under the Bioterrorism Act of 2002.
Herzfeld Rubin Meyer & Rose Which products are NOT eligible: a)Most textile and garment products; b)Footwear, handbags, luggage, and other leather apparel c)Watches d)Other goods TIP: Myanmar should petition USTR regarding the inclusion in GSP of “certified textile handicraft” items (e. g. hand-loomed carpets, wall hangings and pillow covers). Next review:
Herzfeld Rubin Meyer & Rose TIP: Myanmar exporter should undertake due diligence research on U. S. importer: reliability reputation, quality, time, experience and references. Also, which kinds of markets do they serve: large or small, regional or national, and what logistical and transportation resources they have. Determine what the relationship will be: distributor, agent, partner, joint venture, etc. Finally, look at banking references.
Herzfeld Rubin Meyer & Rose Which products are eligible (use the U. S. Harmonized Tariff Schedule – USHTS): https: //ustr. gov/issue-areas/tradedevelopment/preference-programs/generalizedsystem-preferences-gsp/gsp-program-i-0 Look at whethere is duty-free status: https: //usitc. gov/tata/hts/bychapter/index. htm Searchable database: http: //dataweb. usitc. gov/scripts/tariff_current. asp
Herzfeld Rubin Meyer & Rose HRMR CONTACTS Eric C. Rose. Naing Lin Zaw Lead Director. Counsel e-mail: [email protected] use-mail: naing. [email protected] us Tel. +95. 1. 230. 5935 Fax. +95. 1. 230. 5934 MM mobile: +95. 9. 421. 098. 724 MM Mobile: +95. 9. 506. 5170
Herzfeld & Rubin Going the Distance One Step at a Time